March 6, 2014

The Latest Obamacare Delay and What It Means

If you have an old, skimpy health insurance policy that you want to keep, you can now do so for a little longer—although it depends on which state you call home and whether you gave up the plan already.

That’s the basic gist of an announcement that the Obama Administration made on Wednesday. It was part of a series of administrative actions, some of them pretty technical, setting guidelines for how the insurance market will work in 2015 and 2016. And it’s the latest in a string of delays that have drawn scorn and ridicule from the law’s critics, including Republican leaders and conservative writers like Philip Klein of the Washington Examiner. As they see it, the administration is stretching its legal authority and trying to postpone more painful parts of the law until after the next presidential election.

The critics may be right. Among other things, the change applies to small businesses—a group that was likely to experience a significant, and controversial, round of disruptions this year. That was sure to create political controversy. In addition, as Sam Baker of National Journal observed, the administration's press release mentioned consultations with a group of Democratic Senators—most of whom are facing tough reelection fights and have been pressuring the administration to let more people with old plans keep them. (As for the questions about the limits of presidential authority, I'll leave that to the lawyers, at least for now.)

Still, purely on the merits, the move has a certain logic to it. A major goal of the Affordable Care Act is to transform the health insurance market for people buying coverage on their own, directly from insurers—or what policy experts call the “non-group” market. In the old non-group market, carriers could sell policies with huge coverage gaps—exposing beneficiaries to out-of-pocket charges that reached into five figures and, sometimes, excluding whole classes of services. In addition, carriers could refuse applications from people at high risk of filing large claims, and then set premiums accordingly: By avoiding the sick, they could keep prices low. Obamacare seeks to end those practices, so that everybody can get coverage—and that all policies include comprehensive benefits.

It’s a major change—and, as you know, many insurers responded last year by simply cancelling the old policies, rather than trying to upgrade them. That created an outcry among people who remembered, quite distinctly, President Obama’s promise that they could keep their policies if they liked them. A few months ago, the Administration announced that insurers had the option to go back and restore those cancelled plans, as long as state officials were willing to go along. That grace period was to last through the end of 2014. Wednesday’s announcement effectively extends it two more years, so that somebody with a substandard plan can hold onto it through the end of 2016.

Administration officials argue that this announcement merely changes the duration of the transitionary period, without altering the end result. They make a good case. From the get-go, the law had a “grandfather clause,” allowing people with insurance as of March, 2010, when the Affordable Care Act became law, to hold onto their policies. This decision is similar to expanding that protection—and not to a very large group of people. One estimate, from the Rand Corporation, suggests only a half million people still have the old plans. And as Greg Sargent pointed out on Wednesday, that number will dwindle over time, because the non-group market is so volatile, with people moving in and out as they obtain or drop coverage from employers. (The new protection applies only to people who have such plans already. People buying new plans don’t qualify.) And with such small numbers, experts are saying the extension is unlikely to have a major effect on premiums.

Small businesses constitute a larger group. This announcement means the full guarantees of the law—like uniform premiums for the sick and the healthy—won't spread as quickly as they would have within this group. But small business insurance, unlike non-group insurance, was already subject to lots of regulation and less dysfunctional in the first place. Again, the policy impact should be relatively small.

As Larry Levitt, senior vice president of the Kaiser Family Foundation, put it in an e-mail:

…they took a winding path to get to this point, but it does provide a smoother transition to the new system for individuals and small businesses who bought insurance before. If the legislative process had allowed for an orderly conference committee and time to think through transition issues, maybe they would have ended up with something like this in the law to begin with.